Understanding Your Choices

Like home shoppers, private air travelers have only two main options-renting and buying. The numerous other alternatives are just variations on these basic choices, but, oh my, how the marketers of business aviation try to convince consumers otherwise.

To be fair, the tweaking of options is often in response to the marketplace and frequently results in good opportunities for consumers. But buyers must never forget that the devil is always lurking in the details.

The table on page 8 outlines the main offerings available to private air travelers. Here's a closer look.

Basic charter is similar to renting a hotel room or house for a short time. Block or volume charter is akin to negotiating a discount when reserving a large block of hotel rooms or one room at a fixed time every month. Fractional ownership is like buying a timeshare in a vacation home. Ownership of an aircraft, by oneself or in partnership with others, is similar to owning a house. Leasing an aircraft, new or used, is like renting a house for an extended period.

Having a company manage your owned or leased airplane is akin to paying an agent to take care of everything to do with your property-from hiring and paying the staff to repairing the furnace to maintaining the garden. Allowing an aircraft management company to charter out your airplane is analogous to having a property manager rent your house to others when you aren't using it.

The only private aviation option that defies comparison to real estate is the so-called jet card. This is a charter deal that's similar in use to a prepaid telephone or debit card, though with a much larger minimum payment.

Among this year's trends is one exemplified by two of the major business aircraft manufacturers-Bombardier and Cessna. Both have arrived at a point where they're not only selling and supporting their aircraft product lines, but are also providing a full range of private-travel options to consumers. While their paths to this destination were different-and are stories in themselves-the outcomes are strikingly similar.

Bombardier, via its Flexjet subsidiary, today offers charter, block charter, jet cards, fractional ownership and aircraft management of your owned airplane, which the company will also charter out if you wish. And yes, Bombardier is still happy to sell or lease to you a new or used airplane, which you may fly away to your own hangar on your home airport and operate with your own flight and ground crews. And the company will help you arrange financing, take your current airplane in trade and maintain your new one under warranty at its factory and authorized service centers.

Cessna Aircraft, via its CitationAir division, is doing the same thing. Besides some program details (remember the devil?), the major differences are the aircraft models offered. Each manufacturer deals only in its own aircraft (although both will, of course, take in trade and resell used airplanes built by other companies).

No other business aircraft manufacturers provide all these user options. Hawker Beechcraft actually did feature such offerings a while ago, when it was part of Raytheon Company, but it ended up selling its fractional (Flight Options) and charter and management businesses.

Dassault Falcon has a small charter operation based at Le Bourget Airport in Paris, but its Web site link for "Fractional Ownership" goes to NetJets, which operates jets from other manufacturers as well as some Falcons.

Neither Gulfstream nor Embraer offer consumer options. However, General Dynamics, which owns Gulfstream, in 2008 bought Jet Aviation, which does manage and charter aircraft, though these two businesses remain separate entities under the parent company.

It's too early to judge whether the "old country buffet" approach will work for Bombardier and Cessna. Both of their product lines do lend themselves to the concept, however. Gulfstream's and Dassault Falcon's lines, which lack entry-level and light jets, would appear not to. Embraer's budding and expanding roster of jets could eventually embrace the concept and, given the company's stated goal of becoming a major player in the market, there's no telling what might emerge.

An interesting coda to the jet manufacturers' stories is the situation with two major business turboprop companies-Italy's Piaggio and Switzerland's Pilatus. Neither offers consumer options. However, separate, non-manufacturer fractional operators devoted solely to their products are doing well. These are Avantair, which flies only the Piaggio Avanti twin-engine turboprop, and PlaneSense, which features only the Pilatus PC-12 single-engine turboprop. In fact, these two fractional providers have fared better in the current economy than the ones dealing in jet aircraft.

NetJets, which is the king of fractionals and not affiliated with any single manufacturer, faces well-publicized problems, but new management seems intent on cutting costs to levels that will turn the company around. Gone or at least much less firm than in past years, however, are the blockbuster aircraft orders that NetJets had with Cessna, Dassault Falcon and Gulfstream.

Flight Options, Flexjet and CitationAir have all seen headier days, which is a major reason for the latter two's embrace of new approaches.

We should mention that many charter/management companies use such tactics as well, offering all the same consumer options that Bombardier and Cessna do, except for selling new aircraft directly from the factory. Some even offer advice and assistance to customers looking to buy new aircraft or buy and sell used aircraft.

Meanwhile, one hybrid charter/fractional company, California-based XOJet, appears to be carving out its own successful niche. Few charter companies actually own the airplanes they put out for charter. Rather, the aircraft are owned by individuals and companies unrelated to the charter company, except through their aircraft management contracts. XOJet, however, owns most of its fleet; what it doesn't own, it has sold to customers, for whom it manages the airplanes. The fleet consists of just two models, the Cessna Citation X and Bombardier Challenger 300. These were selected, the company says, because their performance and size make them particularly efficient for U.S. transcontinental charter and fractional operations. XOJet also offers fixed-pricing on a network of city-pairs across the U.S.

Switzerland-based VistaJet, like XOJet, owns most of its fleet and it will manage your owned aircraft. However, VistaJet offers block charter instead of fractional deals. It also operates outside the U.S., uses only Bombardier airplanes and has a charter tie with Flexjet for U.S. flights. Finally, VistaJet doesn't offer fixed prices on select routes, as XOJet does. The size of VistaJet's business jet fleet is second only to that of NetJets Europe outside the U.S.

XOJet's and VistaJet's business models appear to be working and both these private companies profess to be sufficiently capitalized. Commercial aviation is a tricky business, however, and the proof will be in the longevity of these outfits. In the history of business aviation, more than a few highly hyped and ostensibly solidly backed aircraft charter and fractional companies have gone out of business.

On the pure charter front, two developments deserve mention. Richard Branson's Virgin Charter online marketplace for air charter folded last October. (At the time of its launch in March 2008, I suggested that "online charter booking could become as commonplace as online airline booking in a few years," but I wasn't the only one making optimistic predictions: CNNMoney.com in 2007 named Virgin Charter one of "15 companies that will change the world.")

Two other business-to-business companies that focus on online charter-U.S.-based CharterX and Sweden-based Avinode-merged this year. While their Web sites aren't for consumers, charter operators and brokers use the CharterX and Avinode online scheduling systems to match requests with operators. This merger should benefit end users by identifying a greater number of flights and more timely availability of empty-leg flights.

Another options trend-while somewhat amorphous-is the increasing appearance of private-aircraft membership clubs (jet-it-together.com) and charter brokers promoting ride-sharing (evojets.com), and sometimes a combination of the two (greenjets.com). All are based on charter, some involve an element of charter brokering and all are online (see "Share a Ride, Save a Bundle?" in our April/May 2010 issue).

Their main marketing pitch is lower cost, though Greenjets promotes its eco-friendliness as well. Some Web sites are affiliated with a specific charter operator (cogojets.com, for example, shares common ownership with Jet Linx Aviation); others (jetcharterpool.com) are simply trying to connect travelers so they can match trips and share a jet. This is definitely an area where the consumer should apply the timeless axiom, "buyer beware." A cautionary note: All such concerns, as well as pure charter broker sites, should post statements indicating that they do not own the aircraft they are finding for users-a requirement of the feds in the U.S.

Making private air travel more affordable-as these operations are trying to do-would seem a good way to expand the industry. The problem now is that the industry is already too expanded for the current level of usage. The inventory of used jets, while below its high in 2009, remains well above "normal" levels, which is keeping used-jet prices down and depressing sales of new jets. The number of jets available for charter also exceeds demand, forcing some charter operators and owners of managed aircraft to offer charter rates as low as, or even below, their hourly operating costs. Still, increasing the number of customers has to have good effects in the long run.

Though the basic private air travel options-rent or buy-will remain with us unless and until changed by regulation, the industry continues to evolve. Operators will likely keep designing and offering new ways to present their products within the limits of the regulations and good business practices.

How do you pick what's right for you from this ever-changing smorgasbord of private air travel options? In a word, carefully.

Do your own research, talk to friends who use private aviation (or even hitch a ride with them), visit the facilities of charter and fractional operators, talk to representatives of the aircraft manufacturers, seek advice from industry experts and consultants, go to trade shows and other events organized by the National Business Aviation Association, the European Business Aviation Association and others, and continue to read this publication and visit our Web site (bjtonline.com). As business aviation changes, we'll keep you in the know.

Plain text

Quote/Unquote

“
While it may be tempting to use broad generalizations about the way business aircraft are most often used in America today, let’s not neglect the importance of business aviation as a crucial competitive asset to companies, an economic driver and lifeline to communities large and small.
”